Major Govt review recommends speeding up state pension age increases

Pensions-savings-retirement-piggy bank

The state pension age will need to increase again just ten years after the Government completes its last scheduled rise, according to a key report which also recommends abandoning the state pension triple lock.

The hotly-awaited Government-commissioned review by former Confederation of British Industry director general John Cridland into the state pension age has been released today and recommends that it needs to increase from 67 to 68 between 2037 and 2039.

The Government has already committed to raising the state pension age from 65 to 66 by October 2020, and then to 67 by 2028, but Cridland has recommended the rise to 68 comes at least 7 years ahead of the planned 2046 date.

To smooth the transition for those affected, Cridland has recommended offering means-tested support for the year before state pension age to those who can’t work due to ill health or caring responsibilities.

For those over state pension age, Cridland also suggests they could go into partial drawdown as they carry on working, while those who defer their pension should be entitled to a lump sum.

While increasing state pension age on Cridland’s timetable would cut state pension spending as a proportion of GDP by 0.3 per cent compared to Office for Budget Responsibility projections, removing the triple would further reduce state pension spending from 6.7 per cent of GDP to 5.9 per cent by 2066/67, Cridland argues.

The Cridland report reads: “In the longer term the retention of the triple lock is forecast to become a very significant factor in the cost of the State Pension. It is estimated that it would be responsible for 0.9 per cent of GDP in 2066/67. This will raise questions of intergenerational fairness as between those in work and those in retirement.

“The longevity link appears close to the limit of what can be saved on state pension spending through increases in the state pension age. Further savings to ensure fiscal sustainability are more appropriately delivered by moving in the future to uprating the pension by earnings.

“We therefore recommend that the triple lock is withdrawn in the next Parliament.”

A separate report commissioned from the Government Actuary’s Department also released today shows the impact of sticking to a principle announced by the Coalition Government in 2013 that an individual should spend on average up to one third of their adult life above state pension age.

If individuals are to spend exactly a third of adult life above state pension age, the GAD predicts that the state pension age would rise again to 69 between 2053 and 2055. However, if this drops to 32 per cent, the state pension age could hit 69 as soon as 2040.

The Government says it will place equal weight on the Cridland and GAD reports before making its decisions in May.

Hargreaves Lansdown head of retirement policy Tom McPhail adds that the report, which highlights the importance of the Government’s role in making everyone affected aware of the changes to state pension age, “could be construed as a dig a recent Department for Work and Pensions communications”.

The Women Against State Pension Inequality Campaign have criticised DWP for failing to inform women born in the 50s that their state pension age would increase.